Mr Kennedy said he wanted to see changes to the legislation, which caps benefit rises at a below-inflation 1% for the next three years, before it becomes law.

Miliband accused Cameron of attempting to divide and rule

Charities which work with poor families voiced dismay at the outcome of last night’s vote, which saw MPs give the Bill a second reading by a majority of 56, clearing the way for more detailed scrutiny in committee.

But Mr Cameron insisted the cap – branded a “strivers’ tax” by Labour – was “fair” at a time when wages are increasing only slowly.

In a message on Twitter, the Prime Minister said: “The Commons vote to limit benefit rises to 1% while pay is only rising at 1% is fair. Labour have the wrong priorities.”

Work and Pensions Secretary Iain Duncan Smith told MPs that benefit levels had grown by 20% since the beginning of the recession, while incomes for those in work have risen by just 10%.

“What we are trying to do over the next few years is get that back to a fair settlement and then eventually it will go back onto inflation,” he said.

Cameron branded it a ‘strivers’ tax

The cap, announced by Chancellor George Osborne in his Autumn Statement last year, is aimed at slashing £5 billion from the welfare bill over the next five years.

Mr Osborne has previously justified it by asking: “Where is the fairness… for the shift-worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour sleeping off a life on benefits?”

But Mr Miliband said the benefits debate marked “a fork in the road for the country”, citing figures showing that almost 70% of those who will lose out from the changes are in employment.

“It’s now clear what the government’s strategy is: it’s a divide and rule strategy,” the Labour leader told the Daily Mirror.

“They haven’t succeeded in the first two-and-a-half years so they want to point the finger of blame at someone else so it doesn’t get pointed at them. And therefore they are trying to divide and rule.

“They are cutting taxes for millionaires while hitting low-paid people, those people whose curtains are open when George Osborne gets up and still open when he goes to bed.”

Mr Kennedy, who voted in both the Yes and No lobbies to register his abstention, said he was now “looking now to work with like-minded Lib Dems to amend the bill in its later stages”.

Ms Teather, who lost her job as children and families minister in September last year, hit out at Tory ministers’ characterisation of the measure as a division between “shirkers and strivers”, warning it would have “long-term impacts on public attitudes, on attitudes of one neighbour against another”.

She was joined in the No lobby by fellow Liberal Democrats David Ward, John Leech and Julian Huppert. Andrew George also abstained by voting in both lobbies and a further three Lib Dems who had earlier voted against a Labour amendment were absent for the key division.

Labour former foreign secretary David Miliband said the “rancid” bill was motivated by “the politics of dividing lines”.

“The enemy within is not the unemployed, the enemy within is unemployment. I don’t want to live in a society where we pretend that we can enjoy the good life while our neighbours lose their life chances,” he said.

But Mr Duncan Smith accused the last Labour administration of “spending taxpayers’ money like drunks on a Friday night” and “buying votes” by increasing handouts.

Labour had tied increasing numbers of households into the benefit system and created a “ridiculous nonsense” which made nine out of 10 families with children eligible for tax credits, he said.

Barnardo’s chief executive Anne Marie Carrie warned that MPs risked condemning children in Britain’s poorest families to “growing up stuck in the poverty trap, as their parents struggle to cover basic costs of living”.

And Oxfam’s director of UK poverty, Chris Johnes, said working-age benefits which poor families rely upon were being made to bear the brunt of Government cuts.

“Already, compared to average earnings, benefits are at their lowest levels since the welfare state was founded,” said Mr Johnes

“On top of this, inequality will deepen as the proposed changes in the bill are undoubtedly going to hit poor families hardest.”